ASX manages first gain in three days as banks advance

The Australian sharemarket notched small gains on Thursday, with banks and AGL helping the advance, as investors managed to hold on to early optimism generated by US tax cut plans.

The S&P/ASX 200 index ended the day up 6 points at 5670, for its first advance in three sessions. Investors showed the marked lack of conviction that has bedevilled the market in recent days, with most of the early gains erased by the end of the session.

US markets had provided an optimistic base for Thursday’s trade, with shares advancing on Wall Street after US president Donald Trump outlined his plans to reform the US tax system.

RBC analysts said that if Mr Trump’s tax cut plan was passed in its current form «and acknowledging that some key details are still missing,» a good baseline would be that the tax plan could increase US GDP growth by at least 0.5 per cent per year, and potentially boost the benchmark S&P 500 equity index by 200 points.

They said that, more importantly, the GDP boost from this potential tax plan could alter the path of monetary policy.

«We think the economic reassessment that would follow the passage of such a plan would also, naturally, lead to a recalibration of the expected Fed Funds rate.»

Against that backdrop, the Australian dollar wallowed near six-week lows as the greenback jumped on the tax plan news. The Aussie took another leg down with the release of job vacancies data and was trading at US78.21¢ late in the afternoon.

Heavyweight banks were a support to the Australian index on Thursday, with the sector adding 9 points to the index.

Macquarie rose 2.3 per cent, CBA gained 0.4 per cent, and NAB advanced 0.5 per cent. ANZ bucked the higher sector trend to trade down 0.2 per cent following a downgrade to hold at Bell Potter.

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Energy supplier AGL rose 1.7 per cent after it was upgraded to outperform at Credit Suisse. Suncorp was upgraded at Goldman Sachs and its shares were up 1.1 per cent.

Other advancers included BlueScope Steel, up 3.6 per cent, while Synlait Milk surged 9.1 per cent in Australian trading after it, along with partner a2 Milk, secured product registration in China. A2 shares ended the day flat.

Miners were the laggards of the session, after some more weakness in iron ore. Rio Tinto declined 2 per cent. BHP fell 1 per cent, Newcrest Mining lost 2 per cent and Fortescue Metals Group dropped 2.7 per cent.

Stockwatch

AGL Energy

AGL Energy jumped 1.7 per cent to $23.23 after rising as much as 4.1 per cent at one point during the session. AGL was upgraded to outperform at Credit Suisse with the broker saying Australian political intervention into the domestic energy market is at «point of peak risk», yet AGL’s market power remains intact and arguably enhanced following policy discourse over recent months. The broker added that AGL’s correlation with electricity futures has broken down and the downside risk to prices from LNG gas export restrictions and re-regulating Victoria’s retail electricity prices «is contained.» Credit Suisse lifted its price target to $27 from $23.25. The move for AGL came as part of a wider advance for utilities, with the sector up 2 per cent.

Milk moves

Synlait Milk shares surged 6.7 per cent in New Zealand trading and more than 9 per cent in Australia following news of partner a2 Milk’s registration approval from China which will allow it to continue to sell its infant formula into the massive market place next year. Credit Suisse said that the approval was critical for Synlait to de-risk volume assumptions in the company’s fiscal 2018 guidance. The broker added that, notwithstanding implied positive developments for volumes and margins, the registration means that the notion that Synlait is a contract manufacturer is «clearly being put aside by the market».

Japan elections

Japanese stocks moved higher, with the Topix up 0.7 per cent, after Japanese Prime Minister Shinzo Abe called a snap election following days of speculation. Fresh opinion polls showing a fledgling conservative party led by popular Tokyo Governor Yuriko Koike was gaining momentum ahead of the expected October 22 vote. Brown Brothers Harriman analysts said the decision to call an election shows that Mr Abe «thinks his odds are better in light of the bounce in public support following a cabinet reshuffle and the escalation of tensions with North Korea». The political uncertainty may discourage investors from buying Japanese shares going forward, they added. .

Vacancies

The number of job vacancies increased, indicating recent strong job growth will continue. Employers were seeking to fill 203,700 positions in August, seasonally adjusted, up six per cent from May, with the vast majority of vacancies in the private sector, the Australian Bureau of Statistics said. Vacancies in the private sector rose 6.1 per cent from May to 183,700, and in the public sector they jumped 5.2 per cent to 20,000. Commonwealth Bank senior economist Michael Workman said the growing number should see monthly job gains in the range of 18,000 to 22,000 over the next few quarters, and 250,000 jobs added over the next year. «It will add to the already robust jobs growth of 325,000 over the year to August,» he said.

Paper problems

Finished paper prices are reportedly surging in China as supplies of the raw material shrink following China’s ban on imports of 24 types of rubbish in July. The ban, which is part of a campaign against «foreign garbage» and environmental pollution, includes unsorted scrap paper. Huge mountains of old newspapers, cardboard and office scrap paper are now piling up on Hong Kong’s docks and its waste-paper collection sites are at bursting point. A flotilla of cargo ships laden with paper meant for recycling has been stuck for weeks in local waters. Each day in Hong Kong, 2500 tonnes of fresh paper waste is piling up with no place to go, according to Jacky Lau, director of Hong Kong’s main recycling business association.